Earnings from NRE account deposits are exempt from tax to certain class of individuals having non-residents or RNOR status under income tax law. Additionally DTAAs meaning Double Taxation Avoidance Agreements provide for reliefs to non-residents with lower rate of tax on interest incomes arising in India and in some cases where payer of interest is central government there is complete exemption on such interest earned.
Further the term “interest” under the treaty ordinarily contains reference to (i) income from Government securities, bonds or debentures, (ii) debt-claims of every kind, and (iii) all other income assimilated to income from money lent by the taxation law of that State in which the income arises.
The definition is so vast that it would cover almost all and sundry forms of interest incomes.
The Madras High Court in  384 ITR 312 (Mad) held that even interest on income tax refund is in the nature of income earned from a debt claim entitled to lower rate of tax at 15% under article 12(2) of the India-Italy tax treaty. However since here the payer is central government the entire interest got exempted vide superseding article 12(3) (a) in the treaty.
Non residents may thus choose to take advantage of the treaty provisions applicable to them and save on Indian taxes viz a viz interest earnings in their tax computations.